Adam Bandt (Melbourne, Australian Greens) Share this | Link to this | Hansard source

There is much talk of the miracle of the mining boom, but the reality is that we have a Jekyll and Hyde economy: one side of the economy is at war with the other. The more the mining bubble grows, the more the rest of the economy suffers—and we know what happens to bubbles: eventually they burst. At this rate, when the bubble bursts there will be little left to keep the economy going. So we need action: we need action to take the heat out of the dollar, we need action to ensure the enormous wealth of this mining boom is not squandered—squandered either by shifting the profits overseas, along with the iron ore and the coal; or squandered by spending today what the mining tax will raise instead of saving for tomorrow.

At the tax forum last year the Greens advocated that a substantial proportion of the proceeds from the mining boom should be quarantined for these two reasons. The first reason is intergenerational equity. There could be a fund that could be drawn on after the resources are exhausted as a means of sharing the benefits with future generations. The second reason is to address the challenge of the two-speed, or Jekyll and Hyde economy. A sovereign wealth fund investing offshore could help to counteract the appreciations of the Australian dollar, which have eroded the international competitiveness of important export industries such as sophisticated manufacturing, tourism and international education.

Sovereign wealth funds have operated well overseas, in places such as Norway, where they have invested proceeds from their North Sea oil. So we should commit to putting in place a sovereign wealth fund, and the first step is a thorough examination of how it could be done. Consequently, my motion calls for the Productivity Commission to properly examine the issue and report back. Sovereign wealth funds are generally state owned investment funds composed of financial assets such as stocks, bonds, real estate or other financial instruments. Around 36 countries have such funds; some countries even have more than one. Currently, $4.2 trillion worth of assets are under management by these types of funds—that is an increase of 11 per cent from 2010.

In some respects Australia already has a type of sovereign wealth fund. The Future Fund was established in 2006 to meet unfunded pension liabilities for former public servants and Defence employees. I do have criticisms of how the Future Fund has invested some of its revenue—most notably in tobacco shares, and I commend my colleague Senator Richard di Natale, who is working to address this issue—however, I do believe the Future Fund has shown that it is possible for such a fund to function effectively and with fairly wide support in Australia. I believe there is a need, and a space, for another sovereign wealth fund that could be an important economic stabiliser and provide the country with protection from overheating or from a future economic downturn. A new sovereign wealth fund could also help provide for the country's infrastructure needs.

In the time available I do not intend to try and debate all the issues relating to sovereign wealth funds. It is a complex and serious issue and deserves detailed discussion and examination, as my motion suggests. I do note that there are some high-profile advocates for the establishment of a sovereign wealth fund. Individuals such as Ralph Norris, previously the CEO of the Commonwealth Bank; and Mike Smith, the CEO of ANZ; as well as Fairfax chairman and RBA board member Roger Corbett. I also note the member for Wentworth has advocated for such a fund to be established, and I note his detailed and thoughtful speech on this topic in April last year. I anticipate that there will be those who do not support the establishment of such a fund at this time because, they will say, the budget needs to return to surplus first. I do not necessarily agree with that, but my motion is not inconsistent with it. My motion allows for a thorough examination to take place over the coming months, and those who believe that that ought to happen first can still nonetheless support this motion.

Mr Briggs interjecting—

Yvette D'Ath (Petrie, Australian Labor Party) Share this | Link to this | Hansard source

Order! The member for Mayo will get his turn shortly.

Adam Bandt (Melbourne, Australian Greens) Share this | Link to this | Hansard source

I look forward to a productive debate on this motion, and I am willing to consider amendments to get this motion through, because nothing could be more central to our future economic prosperity than understanding how we manage the mining boom. It is incumbent on all of us to focus our efforts on that task. The Australian Greens and I will continue to advocate for a proper mining tax based on that proposed by Treasury and the Henry review, and we will continue to press for a sovereign wealth fund. I commend the motion to the House.

Jamie Briggs (Mayo, Liberal Party, Chairman of the Scrutiny of Government Waste Committee) Share this | Link to this | Hansard source

One joy of having children is that you get to read lots of fairytales, but I have not heard a better fairytale than what I have just heard from the member for Melbourne. In all seriousness, the Greens standing up with an economic policy which, to quote Ronald Reagan, is based on, 'If it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidise it,' is a joke. To be lectured to by the member for Melbourne about two former heads and one current CEO of a bank that the member for Melbourne spends nearly day after day kicking the living suitcase out of is, I think, just a little bit hypocritical now that he is taking their advice.

The member for Melbourne's understanding of the finance sector, if you are to believe him, is that, while Australia is nearly $300 billion in debt, what we should be doing is taxing the best performing industry even more because they will just keep creating jobs and investing even though they are now being taxed even more than they were before, and we should invest all those proceeds in this sort of magical money pudding which is the Greens' economic policy. We should put that into a separate account for some future need. He then tries to quote the member for Wentworth as his source for the reason he supports this. I acknowledge that the member for Wentworth supports this concept, but you will find also that the member for Wentworth supports paying off the debt. That is not something you would do, Member for Melbourne, because you would have a multibillion-dollar dental scheme in place before that—a scheme, I might add, that the former Labor finance minister Peter Walsh, who I know the member for Fraser has much respect for, said would be the quickest way to bankrupt the Commonwealth. That is what Peter Walsh, the former Labor finance minister, said: the quickest way to bankrupt the Commonwealth.

So you have this sort of magical money pudding idea that the member for Melbourne wants to push around. He asks for suggestions for amendments that might help support it. Well, here is a suggestion: get rid of Bob Brown's bank. Get rid of the $10 billion you are going to spend and waste on projects that the Greens think are worthwhile, with all your economic expertise. Get rid of that. There is a start. There is $10 billion less that the future generations of this country, including my children, will have to pay off and that you are recklessly encouraging your coalition partners to engage in.

The member for Fraser knows all this is true. He knows you cannot set up a sovereign wealth fund which changes the dollar. The member for Melbourne did not even begin to explain how much would be required on the international money markets to change the value of the dollar. I wonder if the member for Melbourne has any idea at all about how much would be required to be in this fund. A hundred billion? Two hundred billion? Half a trillion? A trillion? How much Australian taxpayers' money would it be, member for Melbourne, that the Australian government—the five people sitting around a boardroom table—would have to sit there and invest overseas to play with the dollar value? How much would it be? How much Australian taxpayers' money are you willing for a group of people to spend overseas to play with the dollar's value? I would be really interested in the answer. I suspect the member for Melbourne has not got a clue.

The Greens on economic policy make the Labor Party look relevant. For goodness sake! We are nearly $300 billion in debt and he is talking about establishing a magic pudding sovereign wealth fund on the basis that the mining industry is going to continue to contribute these additional taxes, which of course will not damage investment at all! They will not stop people investing! No, you just continue to ramp up the tax. The next line will be 'because Australians own those assets'. That will be the next line we hear from the Greens. Of course, that is not true either. The mining companies invest their capital to make the most out of those assets. They are the people who employ. They are the people who take the chances. The taxpayer does not. By the way, those taxes that those mining companies pay and those jobs that they create go towards the Commonwealth so that they can provide services like health, education and the services that the Australian people demand. This motion should be laughed at. If it were coming from someone who had seriously thought about a sovereign wealth fund and wanted to engage in a debate about the merits of a sovereign wealth fund, it would be worthwhile having this discussion, but when it comes from the Greens, when it comes from a pretend communist, it is not worth the time to have this discussion. There are merits in having funds established. The Future Fund is one where you have a specific purpose. Peter Costello saw that purpose as ensuring that in the future we are able to meet our obligations. To sit here for five minutes and listen to the member for Melbourne, the former communist, tell us about financial policy is a joke.

Andrew Leigh (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

It is always a pleasure to follow one of the modest members in this place! Opened in 1880, the Melbourne Royal Exhibition Building is widely considered a national treasure. It was the first building in Australia to achieve World Heritage listing. It was made possible by the discovery of gold in the 19th century. If you want to see the legacy of the first Australian mining boom, you just need to look around central Melbourne. The question we are facing today is effectively this: would Victoria now be better off if the Victorian government of the 19th century had saved the money rather than building infrastructure? That is basically the argument made by those who argue that the right policy response to today's mining boom is a sovereign wealth fund. One of those sovereign wealth funds has various advocates. I have certainly heard the members for Wentworth and Kooyong in the popular press making strong arguments in favour of sovereign wealth funds. There are typically three arguments made by proponents of sovereign wealth funds and it is worth going through those in turn.

First of all, some say that with the Australian dollar at historic highs we ought to amass greenbacks as a form of insurance against a currency slump. It is certainly true that a currency slump would be a shock to the economy, but it is not the only one we have to guard against. Governments have to anticipate and react to natural disasters, fiscal shocks and even unexpected technological change. We have already got substantial foreign holdings. The Future Fund has $75 billion, of which about a quarter is in overseas equities, and Australians have $1.3 trillion in superannuation, of which about a fifth is overseas assets.

The second argument made for a sovereign wealth fund is that it would cure Dutch disease, which occurs when a mining-induced currency rise hurts other export industries such as manufacturing, tourism or higher education. Most likely it is true that saving a greater share of mining tax revenues would lead to an easing in monetary policy and therefore a lower exchange rate, but the effect would be modest, particularly under current mining tax rates. If your top priority is to cure Dutch disease, a sovereign wealth fund is more of a bandaid than a vaccine.

The third argument for a sovereign wealth fund is that we need to boost national savings. It has got a virtuous ring about it, but it misses the fact that Australians already save a great deal. In 2010 our gross national savings rate was 25 per cent higher than Japan's. The current federal government's fiscal consolidation is one of the fastest on record and a significant share of government investment is a down payment on future productivity. That is what we are doing with the National Broadband Network, education and transport. If you believe that Australia needs to save more, you need to say which taxes you would increase or which spending you would cut. A sovereign wealth fund without deposits has all the usefulness of a pub without beer. To put it another way, a sovereign wealth fund is in simple terms a piggy bank that contains foreign currency. It is not much use if it is empty.

At its core the debate over a sovereign wealth fund comes down to intergenerational equity. Most economists and philosophers believe our generation has an obligation to hand on to our children at least as much wealth as we inherited. We do not need to preserve every hill and rock, but if we use up an asset we should replace it with one at least as valuable. That affects how we think about the climate change debate. The Great Barrier Reef has extremely high value, so it merits urgent action by our generation to preserve it. But intergenerational equity also reminds us that future generations will be richer than us and not necessarily any more public spirited, so there is no philosophical obligation to leave our children an overstuffed piggy bank rather than, say, a good education and a well-functioning rail network. Indeed, if we were to slash spending on skills and infrastructure and save the proceeds, future generations might well condemn us as short-sighted scrooges. This is not to say that there is not a strong case for a sovereign wealth fund sometime in the future. Maybe in the future we might be able to think about a Norwegian style fund to build a stock of assets to the future or a Chilean style fund to implement counter-cyclical fiscal policy, which was so sorely missing for much of the Howard years. But in the current economic environment it is hardly a high priority. If you are concerned about future generations, let us focus on the top priorities: a price on carbon pollution, shifting from the outdated mineral royalties scheme to a profits based mining tax, and investing in skills. These are the sorts of long-term investments that future generations will thank us for. In my view, the notion of a sovereign wealth fund can go in the safety deposit box for now.

Alan Tudge (Aston, Liberal Party) Share this | Link to this | Hansard source

I rise to also speak against this motion. Despite this idea of a sovereign wealth fund gaining some support in influential circles, as the member for Melbourne pointed out, a sovereign wealth fund should be firmly rejected. The fact that a sovereign wealth fund, at its essence, involves keeping taxes higher in order that the government invests in company shares, in itself, should be enough for most sensible people to firmly reject this idea. But, if we look more closely at the evidence, then that should put it beyond any dispute.

To start with, if you want to have a sovereign wealth fund you must have a budget surplus and you have to have paid off your existing debt. In case you have not quite realised, we currently have a $37 billion deficit forecast for this financial year—although that will probably grow by the time we get to the end of it—and we have a net debt of $132 billion. Even if we get to the surplus which the Labor government promises us next year, of $1.5 billion, and similar amounts over the forward estimates, it will take 80 or 100 years before we pay back the debt which this government has accumulated. We have got to get the budget back into surplus and we have got to pay back the debt before we can even think about creating some new financial assets.

Ed Husic (Chifley, Australian Labor Party) Share this | Link to this | Hansard source

When are you going to deliver it?

Yvette D'Ath (Petrie, Australian Labor Party) Share this | Link to this | Hansard source

Order! Allow the member for Aston to be heard in silence!

Alan Tudge (Aston, Liberal Party) Share this | Link to this | Hansard source

Of course, many people on the other side of the table—and certainly the Greens member—would have us go into further debt in order to acquire shares in Procter and Gamble, and Mobil overseas. I find that a ridiculous proposition. I can understand why the Greens would advocate going into further debt so that the government can purchase shares overseas, but I cannot understand why normally sensible people like Ed Husic or Andrew Leigh would advocate such a proposition.

Even if no national debt existed, putting budget surpluses in a sovereign wealth fund is a poor idea. If we are honestly interested in intergenerational equity, which is one of the arguments being put forward for a sovereign wealth fund, what we should be doing is ensuring that our policy settings are geared toward maximising GDP. That is what former Treasury Secretary Ted Evans said. And if we want to maximise GDP, which is the best thing that we can do for future generations, we need to lower taxes, we need to invest in productive infrastructure such as our ports, or completing the Melbourne ring road, rather than keeping taxes high in order to invest in foreign owned financial assets.

Of course, as Dr Leigh pointed out, there are times when we do need to increase savings, but now is not that time. We actually have quite a high savings rate in Australia—higher than the OECD average. Of course, if we did want to increase savings, then let us increase private savings rather than public savings. Private savings means that people can invest where they like, so it is good in principle, but it also means that you have the full diversity of the assets invested, so you end up with a better return than if the government were to invest in particular assets.

If we do go down this path of a wealth fund, as has been advocated by the member for Melbourne, then we can soon have the government owning a sizeable proportion of a particular company's share, which means it then has a conflict of interest when it is trying to regulate that company, because it ends up owning 10, 15 or 20 per cent of that company.

The member for Melbourne also raised the issue of using a sovereign wealth fund to address our currency concerns. The member for Mayo addressed this as well. Again, it is not something that a sovereign wealth fund could do unless it were an enormous fund. The Australian dollar is the fifth-most traded currency in the world—$4 trillion is traded in the Australian dollar every single day. Member for Melbourne, do you honestly think that our sovereign wealth fund will be able to manipulate that currency with $50 billion or $100 billion? How big does this sovereign wealth fund have to be? It will be in Procter and Gamble, or Mobil or Philip Morris, or other overseas companies that we will invest our taxes. It is a ridiculous proposition. It is always superficially attractive to have a big pot of money for a rainy day but, at the end of the day, it involves trade-offs, and the trade-off in this case is holding taxes high in order to invest in foreign owned shares and foreign owned financial assets. (Time expired)

Ed Husic (Chifley, Australian Labor Party) Share this | Link to this | Hansard source

The member for Aston is normally rather mild and reserved, but the member for Mayo has him all riled up and he has decided that he is going to go out there with both fists swinging on this idea. Amazingly, I think we will find that a number of us have views about whether a sovereign wealth fund should be should be established. I am always happy to examine ideas but in moving down that path I also want to make sure that, particularly where we have to make choices over government spending and where we best direct that spending, we are using funds in the best possible way and seeing whether there are alternatives.

Certainly the whole notion of a sovereign wealth fund, to put it into context, has come about as a result of where we are at with the mining boom and people being concerned, and obviously we are just as concerned within government, that once you extract those minerals that is it. They can be extracted only once and exported only once, and the value generated can occur only once. From our perspective, I can certainly understand conceptually that we would want to maximise that benefit for the country not just for now but into the future, as well as looking at what might be done to ease some of the economic impacts felt elsewhere as a result of the mining boom.

A sovereign wealth fund is not a new concept. It has been around since the 1950s, and there are a variety of different funds that exist in terms of the scope or the way in which they were established. They are either stabilisation funds, savings funds or development funds. People have pointed to the Future Fund. I understood that the purpose of the Future Fund was largely in relation to ensuring that the Commonwealth could meet its liabilities with respect to superannuation for Commonwealth public servants. The Future Fund was never set up in a way to deal with the scope that the member for Melbourne has highlighted, which is to help ensure that we maximise the benefits of the mining boom or to ameliorate some of the impacts of the mining boom on the economy.

From my perspective, we have a form of sovereign wealth fund in place right now. If conceptually people are concerned about maximising the value of the resources boom to the Australian economy, we have taken a step this year, which was opposed bitterly by the coalition—that is, to put in place the minerals resource rent tax. Look at the money that will be gained and what we are looking to do with it. For example, through the revenue generated through the MRRT we are looking to boost superannuation funds. We are looking to ensure that we can propel future investment by adding to the national pool of savings through what we are doing with the MRRT flowing through to superannuation. It is not us as a government necessarily picking and choosing what shares we will expend government revenue on, rather the superannuation funds themselves will do that on behalf of their members. That is what we are seeking to do. We are seeking to ensure, for example, that small business will benefit through what we are doing with the MRRT by ensuring that they are able to write off assets to the value of $6½ thousand, and by helping them we will ensure that we can boost employment prospects for the economic health of those small businesses, 96 per cent of which I understand form the backbone of Australian business today. My particular concern, and this has also been expressed rather forcefully by the member for Mayo and backed up by the member for Aston, is that if we are looking in terms, for example, of stabilising the currency for economic purposes with a concern for what that will do to manufacturing—and I have spoken in this place and elsewhere of my concerns about that—the amount of money required would be huge. We have heard the member for Aston highlight that $4 trillion is traded in the Australian dollar on any given day. It would be of very serious concern, then, if we were to say that we would defer decisions on education, health and other infrastructure because we wanted to put that money into a sovereign wealth fund.

I do not doubt that, from his perspective, the member for Melbourne is motivated by economic concerns about this matter. But if we are to make choices about how we spend this money we do need to think carefully about how we do it and whether or not the money that we invest reaches the intended objective.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

I too rise to speak on the member for Melbourne's motion on the establishment of a new Australian sovereign wealth fund. In essence, Australia already has a sovereign wealth fund: the Future Fund. That was established by Peter Costello and is currently worth some $73 billion. I think that the work we as a coalition government did through the leadership of the Howard-Costello government when we paid off $96 billion worth of Labor debt and built a portfolio of assets in a Future Fund is a tremendous example of how an economy should be properly managed.

Whilst the primary purpose of that fund was to provide unfunded Public Service superannuation liabilities, I think it also provided some sort of model for what we could potentially look at in the future. In September 2011, Sovereign Wealth Funds News listed the Future Fund as the '14th largest sovereign wealth fund in the world'. The Future Fund played a crucial role in helping Australia combat the global financial crisis by providing vital liquidity to our banks in the initial fortnight of the panic on world capital markets, following the collapse of Lehman Brothers.

In principle, I think the idea of a sovereign wealth fund has merit. However, given our current economic position and thanks to the reckless spending and mounting debt under this Labor government, talk of expanding our sovereign wealth resources is purely both academic and premature.

If the Greens were serious about restoring resilience through a fund, they would not have recklessly demanded the establishment of the $10 billion Clean Energy Finance Corporation—the Bob Brown Bank—as a price for their carbon tax support. We have no certainty as to how that money will be spent and what economic return we will get. This fund would be established from borrowed money, which in the first place will put further upward pressure on our already mounting debt and interest rates.

I would like to stress that the views expressed in this place today, whether in support of or against an Australian sovereign wealth fund, will have little impact until a surplus is delivered and we start repaying the debt. I have previously mentioned in this place that under Labor we have seen four of the biggest budget deficits in our history. Labor continue to borrow $100 million per day and, in just four years, Labor have turned a $20 billion surplus into $167 billion in accumulated deficits and $70 billion in net Commonwealth assets into what will be $136 billion of net debt.

Currently, Australians are paying $100 million a week in interest, which is robbing our future generations of their wealth. Our annual interest payment on Labor's debt is some $7 billion a year—equivalent to the cost of seven hospitals or, to touch on a current topic, the funding of our NDIS. The Labor-Greens government cannot handle the budget, so why would we trust them with a national savings vehicle? In the past they have taken advantage of national savings vehicles.

For example, the coalition set up the $2 billion communications fund, where the interest was to be invested in telecommunications upgrades in rural and regional Australia in perpetuity. But that has not occurred because the current government had got their hands on it and milked it. Similarly, money put away in the Building Australia Fund was raided and the education endowment fund has been scrapped.

The temptation for politicians to raid sovereign wealth funds was recently referenced in an article in the Australian, entitled 'Sovereign wealth funds poor value for money'. The author, Adam Creighton, put forward his views, stating that sovereign wealth funds 'ultimately provide a tempting pot of funds for politicians to raid'. We do not need to tempt this government to spend money they should be saving. They are already doing a good job of that themselves. It would be far more productive to concentrate on getting back to surplus rather than establishing another fund. Put simply, we do not need another piggybank full of borrowed funds at risk of being pilfered by this government. We need strong economic policy that will guide us back to surplus. (Time expired)

Debate adjourned.